$50K in the Bank? Here's When It's Too Much -- and What to Do Instead

Just like Barry White says, "Too much of anything ain't good for you, baby." And yep -- that even applies to hanging onto too much cash. If you've got over $50,000 sitting in the bank, it's time to rethink your financial game plan.

Keeping some cash savings is smart -- like three to six months worth of expenses in an emergency fund.

But hoarding excess cash could actually be hurting you and costing you thousands of dollars every year.

Saving vs. investing

A lot of people use the terms "saving" and "investing" like they're the same thing. But there's actually a big difference.

• Saving is for short-term goals and emergencies. Think: your emergency fund, a vacation next year, or a new car. This money needs to be kept in cash for quick access.
• Investing is for long-term goals. Think: retirement, growing wealth, or sending your future kid to college. This money should be invested, and not touched for decades.

Both are important. And balance is key.

How much cash should you be holding?

The general rule of thumb: You typically want three to six months' worth of essential expenses in an emergency fund.

If you're saving up for a home down payment, or large purchase in the next few years, that money can be kept in cash too.

But, while it's sitting idle, it should be earning maximum interest.

I use a high-yield savings account to keep my $25,000 emergency fund handy and secure. Right now I earn an APY of 4.50%, which will make me over $1,000 in interest this year. Not bad!

High-yield savings accounts are FDIC insured, you can withdraw your money at any time, and you'll earn top interest rates.

Where to put your excess cash

Anything beyond your emergency fund can be invested for the long term. Here are some places to put that money to work.

401(k) or IRA:

A 401(k) is typically offered through your employer, while an IRA is something you can open yourself. Both accounts offer powerful tax advantages that can help your money grow way faster than it would in a regular bank account.

Inside of these accounts, you can invest in broad index funds or target date funds. These typically have a low expense ratio, and are highly diversified.

Regular brokerage account

A brokerage account doesn't offer tax advantages. But it does have much more flexibility for investment options, and better access to your money. Inside of a brokerage account you can invest in stocks, ETFs, short-term bonds, and more -- there is a lot of choice.

Investing always carries risk. But if you're patient and learn to invest wisely, the long-term growth can yield mind-blowing results.

Still not sure where to stash your emergency fund? Check out our list of the best high-yield savings accounts for the opportunity to earn more than 10 times the national average rate today.

Pay off debt (high interest first)

Still carrying a balance on a credit card or personal loan? Using excess cash to wipe out debt could give you a "guaranteed return" equal to your interest rate.

For example, if your card is charging 20% APR, paying it off is like instantly earning 20% risk free. Tackling lower-interest debt can be smart too. It's better than having cash sit idle and earning nothing.

The true cost of excess savings

Let's say you're holding an excess $30,000 in cash, on top of your emergency fund.

Here's what growth would look like in these accounts:

• Savings account earning 4.00% APY (typical for today's top HYSAs)
• Investment account averaging 8% annual returns (This is a rough example and actually a conservative estimate based on the S&P 500's history)

Compound interest is wild. A tiny rate difference -- over decades -- makes a massive difference in how much money you end up with. Stop waiting and start making your money work harder for you today.